Exploring the Orlando Office Market: July 2023 Update
In a comprehensive video update, Amy Calandrino takes us through the current state of the Orlando office market as of July 20, 2023. Let’s delve into the key takeaways and insights she shared:
1. Upward Pressure on Vacancy Rates: The Orlando office market has experienced a slight increase in vacancy rates, attributed in part to shorter-term leases from the pandemic era. However, it’s important to note that the market covers various counties, resulting in differing vacancy rates across submarkets. Despite challenges, some submarkets remain resilient, displaying varying degrees of vacancy pressure.
2. Leasing Activity and Negative Absorption: Leasing activity has been somewhat suppressed but is on an upward trajectory. The market has seen some negative absorption due to the culmination of shorter-term leases, which were established during the pandemic. Although the overall leasing activity is recovering, the vacancy rate is projected to approach around 10% by year-end.
3. Diversity in Absorption Levels: Different product categories within the market show varying absorption levels. While there’s an abundance of construction underway, it appears that properties in the downtown area are witnessing a decline in occupancy. An apparent exodus from downtown properties is influencing their vacancy rates, still remaining below historical highs.
4. Future Forecast and Market Comparison: The national vacancy rate is expected to rise, and while Orlando’s vacancy rate is projected to stay below the national average, downtown properties seem to be struggling in comparison to the broader market. An exodus from the downtown area, coupled with headwinds facing four and five-star property classes, is causing a drag on the overall economic front.
5. Availability and Construction: Availability is expected to continue increasing, particularly in the four and five-star property classes, which are largely concentrated in the downtown area. There’s notable construction activity, especially in the tech-focused regions near UCF and Research Park. Groundbreakings like “The Edge” are indicative of this momentum, although some projects may experience delays.
6. Price Trends and Cap Rates: Price per square foot has experienced fluctuations, with a peak in the summer of 2022 followed by a modest decrease. This trend is expected to continue with further decreases, while cap rates are forecasted to rise. The inverse relationship between cap rates and prices is evident, impacting the market dynamics.
7. Diverse Submarket Performance: The Orlando market encompasses various submarkets with distinct performance characteristics. While the market as a whole is outperforming the national average, localized variations are evident. Certain areas, such as Winter Garden and Winter Park, exhibit unique trends in vacancy rates, cap rates, and prices per square foot.
8. Population Changes and Impact: Population growth in the region has shown a slowdown, affecting the overall market dynamics. Various factors contribute to this trend, with implications for office space demand and occupancy.
In conclusion, the Orlando office market in 2023 presents a mixed picture, with varying trends across submarkets. While challenges persist, the market’s resilience and ongoing construction projects indicate opportunities for growth. As Amy Calandrino’s comprehensive update underscores, understanding these nuances is vital for both investors and tenants navigating the Orlando office landscape.